The outstanding performance of the Turkish economy has been demonstrated by 9.2% and 8.5% growth rates recorded in 2010 and 2011, ranking Turkey as one of the fastest growing economies globally. Unlike most other countries, Turkey has been able to increase employment by 3.7 million since the first quarter of 2009. What factors contributed to Turkey’s resilience against the impacts of the global crisis? Approaching this question only from a “time of the crisis” angle would lead to an incorrect diagnosis of the case. What Turkey has achieved today reflects the outcome of policies it has been implementing with determination over the last decade, with the aim of achieving a stable, dynamic and well-functioning market economy.
Looking back, we see that two areas of reform have been especially instrumental for Turkey in facing the global crisis: the existence of disciplined fiscal and monetary policies, along with a strengthened banking sector.
Fiscal discipline was at the heart of our programme after we experienced the bitter consequences of derailed public finances and high and chronic inflation during the 1990s. Long-lasting fiscal discipline, in parallel with the existence of stability-oriented monetary policies, have tremendously improved the predictability of our economic policies, thus boosting confidence in the economy. This has had two important effects: Confidence in our currency has risen and the borrowing costs for both the public sector and the private sector have decreased significantly.
Fiscal discipline, a decline in borrowing costs and strong growth led to a sharp reduction in EU-defined government debt stock as a share of GDP, from 74% in 2002 to 40% in 2008. The fiscal space created during this period increased our room for manoeuvre later on in the crisis.
Improved banking sector supervision and our regulatory framework, which were in place before the crisis, led to a strong banking sector with high capital adequacy and high profitability, and enabled the sector quickly to return to regular lending activities during the crisis.
Policies implemented at the same time also enabled a quick rebound of the economy by limiting any loss of confidence both in domestic and international markets. Supportive policies were utilised in a timely, well-targeted and measured manner at the peak of the crisis. The main objectives of these policies were to prevent any sort of liquidity shortages in the markets, increase investor and consumer confidence, minimise employment losses, improve the employability of those out of work, support job seeking activities and ease access to unemployment insurance.
Aware of the importance of preserving this positive policy outlook, we announced a Medium-Term Programme in September 2009 in which fiscal discipline and price stability were assured. The announcement of longer-term policy perspectives boosted both investor and consumer confidence, which led to a rise in domestic demand and employment. Creating a virtuous circle between growth and employment generation was instrumental in Turkey’s strong rebound after the global crisis.
Turkey has succeeded in outperforming many countries in various areas during the global crisis, and our main goal now is to continue by strengthening our position. The stability we have maintained over the last decade has allowed us to introduce long-term targets and plans of action. In order to secure even greater prosperity, we will continue with reforms to enhance the competitiveness and flexibility of the economy.
©OECD Observer No 290-291, Q1-Q2 2012